- | Thursday, July 12
- 12:15 PM
- Kaiserplatz 7-9, 4th floor, Room 4.006
The time varying risk puzzle, Dmitry Kuvshinov
“Do risk premiums on financial assets vary over time, and which factors explain this variation? I study these two questions using a new dataset on historical ex ante risk premiums on three major risky asset classes – equity, housing and corporate bonds – across 17 countries from 1870 to today. First, I draw on the return predictability literature to show that risk premiums on each of these assets fluctuate over time. Second, I show that the time-varying risk premiums on different assets do not co-move. This low co-movement puzzle is difficult to explain with models where asset prices reflect preferences or constraints of a representative agent or financial intermediary. Finally, risk premium movements have macroeconomic effects. A one standard deviation reduction in housing or bond market risk premium forecasts 1–2 percentage points lower GDP as far as 5 years ahead”.